Euro keeps the bearish note unchanged around 1.0550, looks at data, Fedspeak
- The Euro comes under pressure following weekly tops vs. the US Dollar.
- Stocks in Europe trade mostly on the defensive on Tuesday.
- EUR/USD runs out of steam near 1.0580.
- The USD Index (DXY) maintains the constructive tone near 106.40.
- Germany, Eurozone Economic Sentiment surprised to the upside.
- US Retail Sales came in above expectations in September.
The Euro (EUR) could not sustain the earlier bull run to the area of weekly highs around 1.0580 against the US Dollar (USD), prompting EUR/USD to rapidly give away those gains and refocus its attention to the downside once again on Tuesday.
In the meantime, the Greenback keeps the bullish performance in place around the 106.30–106.40 band when tracked by the USD Index (DXY), setting aside Monday’s negative performance as selling pressure in the US fixed-income market persists.
Continuing to centre attention on monetary policy, investors anticipate that the Federal Reserve (Fed) will uphold its position of not implementing any interest rate adjustments throughout the remainder of the year. Meanwhile, participants in the financial markets contemplate the possibility of the European Central Bank (ECB) halting its interest-rate policy as well, despite inflation levels surpassing the bank's target and mounting concerns about an economic downturn or stagflation in the European region.
On the euro docket, the Economic Sentiment in both Germany and the broader euro area tracked by the ZEW Institute came in above expectations at -1.1 and 2.3 for the month of October.
In the US, Retail Sales expanded 0.7% MoM in September and Industrial Production expanded 0.3% MoM in the same month. Later in the NA session, the NAHB Housing Market Index, Business Inventories and speeches by FOMC Governor Michelle Bowman (permanent voter, hawk), NY Fed President John Williams (permanent voter, centrist), Minneapolis Fed Neel Kashkari (voter, hawk) and Richmond Fed President Thomas Barkin (2024 voter, centrist) are all due.
Daily digest market movers: Euro seems to have embarked on a consolidative phase
- The EUR faces some selling pressure against the USD.
- US and German yields keep the uptrend well in place.
- Investors see the Fed leaving interest rates steady in the next few months.
- Investors anticipate that the ECB will pause its rate-hiking cycle.
- ZEW officials suggest the worst has now passed.
- Middle-Eastern geopolitical tensions remain high.
- BoE's Swati Dhingra sees some looseing in the labour market.
- The RBA Minutes showed a hawkish stance from policymakers.
- The BoJ could be planning to raise the inflation target to 3.0% in FY2023.
Technical Analysis: Euro faces another potential visit to YTD lows
EUR/USD comes under some mild downside pressure and returns to the 1.0550 region on Tuesday.
Should the current upward trend persist, EUR/USD may revisit the October 12 high at 1.0639 ahead of the September 20 top of 1.0736 and the noteworthy 200-day Simple Moving Average (SMA) at 1.0821. A break above this point could lead to an attempt to surpass the August 30 peak of 1.0945 and approach the psychological milestone of 1.1000. Any further advances beyond the August 10 high of 1.1064 might potentially propel the pair towards the July 27 pinnacle at 1.1149 and even reach the 2023 top of 1.1275 seen on July 18.
Conversely, in the event that selling pressure resumes, there is a chance of revisiting the 2023 low at 1.0448 seen on October 3 and possibly testing the significant support of 1.0400. If this threshold is breached, it could open the path to a retest of the lows at 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).
As long as EUR/USD remains below the 200-day SMA, the potential for sustained downward pressure persists.
Euro FAQs
What is the Euro?
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
What is the ECB and how does it impact the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
How does inflation data impact the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How does economic data influence the value of the Euro?
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
How does the Trade Balance impact the Euro?
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
